When you need to upgrade or expand your available tool set, finding the capital can be a hassle. That’s especially true if you need heavy equipment or a lot of different pieces at once and your operation is already busy. The more work you have in process, the more you need to keep cash flowing for supplies and personnel so you keep bringing money in, and yet it ties up the cash you have. That’s where equipment financing comes in, and in 2022 you have a few great options to choose from.
1. Long-Term Bank and SBA Loans
These are the traditional options for financing heavy equipment because they offer long terms, often 15 years or more, and the loans can be expansive, encompassing many pieces of equipment. Down payments tend to be large at 20% or more of the total cost, but the monthly payment is low and so is the interest rate. That makes these programs ideal for startups, new locations, or total renovations.
2. Private Equipment Lending
Private financing companies have moved into the equipment lending sphere specifically to compete with banks for the businesses looking to get loans with repayment terms of less than a decade. Typically, these loans run two to seven years and have interest rates that can slide to accommodate flexible down payment requests and borrowers with less than perfect credit. In these cases, the cost of capital is directly related to how big the down payment is and how good your credit has been recently.
3. Equipment Leasing With Options
Leasing is not usually a method of financing for ownership, but it can be. When you lease a piece of equipment you know you’ll use longer than the lease term, you can ask for a buyout option. If that is folded into the lease contract, the payments will be adjusted over the term to make sure the lender recoups the cost of equipment, and how much that costs will depend on whether the equipment is new or not. If the investor has already recovered the original costs, you may only be in for the current market value on the used piece.
At the end of the term, you are not obligated to buy the machine. You can instead lease it again at a lower rate or upgrade by leasing something else. If you exercise the option, though, the machine becomes yours. Typical buyouts are only a dollar, too, since the cost of the equipment is folded into the lease’s monthly costs. That option can be a great way to access equipment without high interest rates or down payments, even if your business is still establishing credit.
